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Stochastic Dominance and Absolute Risk Aversion

AuthorsCaballé, Jordi ; Esteban, Joan
KeywordsRisk aversion
Stochastic Dominance
Issue Date4-Apr-2002
SeriesUFAE and IAE Working Papers
AbstractIn this paper we propose the infimum of the Arrow-Pratt index of absolute risk aversion as a measure of global risk aversion of a utility function. We then show that, for any given arbitrary pair of distributions, there exists a threshold level of global risk aversion such that all increasing concave utility functions with at least as much global risk aversion would rank the two distributions in the same way. Furthermore, this threshold level is sharp in the sense that, for any lower level of global risk aversion, we can find two utility functions in this class yielding opposite preference relations for the two distributions.
DescriptionTrabajo publicado como artículo en Social Choice and Welfare 28(1): 89-110 (2007).-- http://dx.doi.org/10.1007/s00355-006-0151-x
Appears in Collections:(IAE) Informes y documentos de trabajo
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